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Tax exemptions and corruption

The Chain Bridge of Budapest is an engineering and architectural project which its inhabitants are very proud of.  This bridge is historical for several reasons. First, it communicated two cities, Buda and Pest. Crossing the Danube River had its issues depending on the season of the year.

According to a popular story, Count Esteban Széchenyi received the news his father had died in Vienna and needed to cross the river, but it was impossible to cross. Then he promised he would one day build a bridge to communicate both cities.

In a visit to England, Széchenyi was impressed with the Marlow hanging bridge, a project of engineer William Tierney Clark, who Széchenyi searched to design and build the bridge between Buda and Pest; and although the official name of the bridge is the Széchenyi Bridge it is mostly known as the Budapest chain bridge. The bridge brought together two urban centers which was decisive in terms of economic and cultural progress.

Also politically the bridge it is unique as it was the first time in history that the Hungarian aristocracy was not exempt from paying taxes with the purpose of financing the construction of the structure.

The lesson was clear; everybody needs to contribute as a fundamental requisite for great economic and cultural advancements in a society. Without political infrastructure and institutions to channel the efforts towards common goals, societies are led to only individual and sporadic efforts.

Someone could retort that by saying that building the Empire State Building was a truly private initiative. And yes there are always exceptions, but great construction feats require the collective efforts and coordinated by political authorities, such as the Eiffel Tower, the CN Tower in Toronto, the 101 Tower in Taiwan or the Eurotunnel between England and France. Due to the tax exemptions which large Colombian companies enjoy, the country may never build anything of this nature.

The tax exemptions that benefit large corporations should be perceived as what they truly are, large-scale fiscal evasion. One thing is what is written on the nominal tax rate which they need to pay and another is the effective tax rate they really pay.

In his book, “A country working for the banks”, Universidad Nacional de Colombia (UNal) Faculty of Economic Sciences Professor Jairo Villabona shows how powerful banks such as Bancolombia, Banco de Bogotá, BBVA and Banco Popular systematically pay taxes for a lesser amount of the nominal rate mandated by law.

Afterward, with Department of Physics Professor Carlos José Quimbay, Villabona furthered the analysis and both showed how the issue is endemic, being the mining and financial sectors those who most evade taxes. Their findings were included in an article, “Effective income tax rates for sectors of the Colombian economy between 2000 and 2015”, published in 2017 in the journal Innovar.

Tax evasion practiced by large corporations is seemingly “legal”. Some could question this statement that if the tax exemptions which benefit companies are real, then they would not need to evade taxes. Therefore, what they are doing is a play on the word “dishonesty” to accuse honest corporations of corrupt actions.

However, this is the argument: the approval of tax exemptions were performed in opaque legislative processes and without major clarity for public opinion; the government, Congress, and large corporations colluded so the latter could enjoy excessive tax exemptions. These agreements should be considered as an authentic conspiracy to defraud the nation.

The effect of this fraud is clear:

  • Definancing of education at all levels
  • Selling off assets of the country, such as ISAGEN, to fund large infrastructure projects.
  • Absences of investment for public welfare, such as hospitals and healthcare centers, among others.

If the common citizen understood how large corporations evade paying taxes, they could protest and hold them accountable for large-scale corruption.

Consejo Editorial